Browsing "Banking and Savings Accounts"
A current account is probably your most important account. These accounts handle your inbound and outbound payments and act as the ‘nucleus’ of personal finance products. Let’s find out more about how they work.
A Transaction Account
A current account is a ‘transaction’ account that is designed to offer you easy access to your cash. Your income gets deposited into this account, while most of your outgoings – from your mortgage to your cash withdrawals – come out of this account.
A current account allows you to set up automatic payments, such as Direct Debits or Standing Orders, for anything that is paid periodically. This is useful because many companies offer discounts or cheaper rates for customers who opt to pay by this method.
Free Accounts or Paid-For Accounts?
Most current accounts are free to use, provided that you remain in credit. Some banks offer additional features, such as insurance, for a monthly fee. These are often known as packaged accounts.
If you spend more money than you have in your account, you’ll go into what’s called an overdraft. Most banks will allow customers an ‘arranged’ overdraft, which is less costly to use. But if you need to dip into the red frequently, it can be worth looking for an account that has a better deal on overdrafts, as the charges can really mount up.
So, what sort of things might you consider when it comes to choosing your bank account?
1. What do I want from my current account?
Some current accounts now offer decent interest rates, worth up to 5%. Some even have opportunities to earn cashback. However, these perks often require a minimum monthly deposit of up to £1,000 per month, so make sure you can meet this if you wish to reap the rewards.
Packaged accounts can offer a significant discount on buying products separately, but make sure you’re eligible to use them before you commit to anything.
2. Does it benefit me in other ways?
It might be worth thinking about your finances more broadly when it comes to choosing your provider, because lenders frequently make better products available to current account customers.
For example, if you’re interested in getting a mortgage or changing your existing mortgage, you might find that lenders offer better deals to their current account customers.
3. How do I switch my bank account?
Switching between banks is now easier than ever, thanks to a new seven-day switch service. Simply apply to a new bank, provide them with the details of your old account, and everything will be transferred across automatically within seven working days. Payments to and from the old account are redirected for over a year, and you’ll be guaranteed a refund if anything goes wrong.
If you’re not happy with your existing current account, think about what you need and get applying for a new one.
A number of banks were severely weakened during the recent financial crisis. The near-collapse of the Co-operative Bank in 2013 shows that this remains a cause for concern. So, for savers, it’s worth taking the steps to ensure that your deposits are safe in case your bank or building society goes bust.
The good news is that UK savers are protected for a large chunk of their savings by the Financial Services Compensation Scheme. This scheme covers deposits in current accounts, savings accounts, bonds and ISAs up to £85,000 per person per institution. For joint-accounts, the compensation limit is doubled to £170,000.
It’s fairly straightforward, but there are a number of complications. What is an institution, for example?
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Many of the double-decker buses shooting past our office windows are promoting NatWest’s latest boast about simple, fair products.
It should feel uplifting, but it doesn’t. The problem is that ‘fairness’ has become the latest excuse to give consumers a raw deal.
NatWest and its parent bank, RBS, made a stand earlier this year by removing all introductory offers on savings accounts, credit cards, and so forth.
No more balance transfer cards with 0% offers. No savings accounts with ‘teaser’ rates.
Fairness is all well and good – but what good does this actually do? All in all, it’s making things worse, not better.
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The Competition and Markets Authority (CMA) has decided that the banking industry isn’t competitive enough and should be investigated. Big whoop…
What does this mean? Well, in around 18 months, we’ll be fed a bundle of spiel and headlines which tell us more-or-less what we already know.
Banks frequently use complex terminology to penalise customers, the CMA’s preliminary report said, owing to an uncompetitive market that offers little motivation for banks to change.
The savings market is also particularly weak at the moment. We might have hoped that the introduction of new ISA regulations this month would have prompted a positive response from banks. Instead, we saw the opposite. Banks withdrew accounts and cut rates.
So, even though a majority of people can probably bypass savings tax altogether, the impact of the incentives remains frustratingly muted. The recent rise in inflation reminds us that we cannot rely on low price rises to excuse poor returns on our savings.
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When we choose to switch banks, it’s normally due to one of a few factors. We may be fed up of poor customer service; we may be seduced by the rewards on offer from another provider; or we may prefer the convenience of a closer branch. The quality of mobile banking apps is rarely considered – but recent trends suggest that it’s about time we factor this in to our decision making.
There’s been a noticeable shift towards mobile banking in the last twelve months. The number of transactions conducted on a mobile app reached 18.6 million per week in 2013, according to the British Banking Association – more than double the levels seen in 2012.
Customers of the five largest banks – Barclays, HSBC, RBS, Lloyds and Santander – downloaded over 12.4 million apps last year. Santander, which has gained a lot of new customers since the new current account switching system launched, saw a sizeable increase of 40% in the number of people using its banking app.
Clearly, we’re becoming much happier with the idea of using a smartphone for our banking needs rather than whiling away our lunch hour at the local branch. And with new services like Paym set to transform the way that we exchange money with others, we can expect the world of mobile banking to keep growing exponentially for some time to come.
It stands to reason, then, that the functionality of a mobile app will soon begin to have a major effect on how and why people choose their bank account.
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How much do you spend on milk every month? How much do you spend at the hairdressers? These are the sort of intrusive questions you could soon face when you apply for a mortgage.
Under new rules due to come into effect from tomorrow (26th April), lenders will be quizzing new mortgage applicants about their lifestyle and spending habits to determine whether or not whether they can afford a mortgage.
The changes, which form part of the Mortgage Market Review, are designed to put an end to high-risk lending and protect buyers from taking out loans that they might struggle to repay if their circumstances change.
What’s the Mortgage Market Review About?
In recent decades, loan decisions have been granted almost exclusively on the basis of an applicant’s income. But buyers with large expenses such as childcare fees or high commuting costs may face affordability problems that cannot be deduced from their income alone.
So lenders will now have to conduct interviews with new mortgage applicants to determine their income and expenditure in more detail.
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